South Africa has a high road accident rate. The chances of having your car stolen are also greater here than in many other countries. So driving around without motor car insurance could be one of your riskiest financial decisions.

If you can’t afford to pay much for insurance, but you know you can’t do without it, you need to shop around to get the best deal for the least money.

Insurance is usually sold through a broker. The broker sells the policies on behalf of the big insurance companies. They often represent more than one company so they should have a range of products to offer you.

Your broker should be a member of a recognised insurance brokers' association, which will ensure that he adheres to a code of conduct. But even a registered broker may not be a good broker, so it is a good idea to get a recommendation from a friend of family member. A good broker will research various options for you to consider. He must explain the fine print and the fees thoroughly.

Make sure the broker earns her fee

Some brokers will throw in a monthly policy fee. This should be no more than 10 percent of your monthly premium. If there is a policy fee make sure that the broker earns it. That means giving you good service. Watch for other extra costs like inception fees. These can be grossly inflated and just one more way of skinning you for more.

When it comes to motor car insurance your broker should have three different types of policies to offer you. There’s comprehensive insurance, third party fire and theft and third party only. Comprehensive insurance is the most extensive cover you can buy and will protect you against the financial damage of theft and accidents. It will also pay for any damage that you cause to other cars.

The cost of your insurance will depend on a few factors. Younger, less experienced drivers will generally pay more. Also, if you’ve made an insurance claim before your insurance will be higher.

All insurance comes with some level of excess. The excess is the first few hundred or even thousand Rands that you have to pay before the insurance company will pay anything. The good news is the bigger the excess you take, the lower your monthly premiums will be.

Make sure you're able to to pay the larger excess if something happens to your car before choosing this option. Besides paying a lower premium, there is another good reason for taking higher excess. If you know that you’ll have to pay out for any theft or damage you’ll probably take more care to ensure that nothing happens to your car in the first place.

Third party fire and theft covers your car against theft. It also covers any damage that you cause to other cars, but it won’t cover you for any accident damage caused to your car. If another driver was responsible for the accident, some insurance companies will help you to get his insurance company to pay for the damage.

Adjust your insurance annually to account for depreciation

If you do choose to buy third party fire and theft or comprehensive insurance there is one golden rule to always remember. At least once a year you need to lower the amount of insurance you pay. Every year the market value of your car decreases. No matter how much insurance you pay, if your car gets stolen, the insurance company is only going to pay its market value. So there’s no point in insuring your car for R30 000 if it’s only worth R20 000.

Most people are probably over insured. They’re paying a premium to cover what the car was worth when they first bought it. Few insurance brokers are going to remind you to lower your premium as your car’s value decreases. So make sure that at least once a year you remind them!

No matter what policy you get, there are always cases where the insurance company will refuse to pay your claim. If your car was found to be unroadworthy, if you were drinking and driving or if your car was damaged by hail the insurance company will often not pay. All policies are different, so you must ask your broker to explain $exactly what your policy covers and what it doesn’t.

Originally published in Moneybook